Export expansion and diversification in Central and Eastern Europe: what can be learnt from East and Southeast Asia?

The outstanding world market success of East and Southeast Asian countries (ESAEs) provides lessons for Central and Eastern European countries (CEECs) striving to penetrate Western markets, even though starting conditions were strikingly different between these country groups. While ESAEs enjoyed the reputation of stable domestic policies, CEECs had to deal with institution building, macroeconomic stabilization and privatization at the same time. First of all, sound macroeconomic policies and an unrestricted access to domestic and imported inputs are absolutely vital for exporters. These factors cannot be substituted for by specific export incentives. Furthermore, Asian experience suggests that such incentives should be granted on a temporary basis in order to discourage rent-seeking and minimize the budgetary burden. Export processing zones are ineffective if they do not exert competitive pressure on the rest of the economy via input and output linkages. Stimulating exports through direct export subsidies has become less important in ESAEs over time because of inconsistency with the GATT and the retaliatory actions of trading partners. Using such subsidies is further constrained in the case of CEECs: Subsidies would conflict with the Europe Agreements, which require that state aid and competition rules harmonize with EU regulations. Foreign direct investment can play an important role in enhancing export growth and diversification, especially if such investment is attracted by favourable market prospects rather than tax holidays. Export promotion by governments should preferably concentrate on institutional support aimed at reducing the information costs faced by local suppliers and foreign importers. Asia's world market success was accompanied by increasing diversification and technological sophistication of exports. Intra-regional networking in terms of trade and investment helped this process considerably. For CEECs, it is thus essential to enhance local technological capabilities in order to enable exporters to apply new technologies. Furthermore, the prospects for a market-driven integration between CEECs can be improved to the extent that mobility of goods and factors of production is allowed for. Economic transformation in CEECs involves policy challenges which clearly go beyond export promotion as in Asia. Moreover, CEECs are facing an uphill struggle against established suppliers on Western markets. Under such conditions, CEECs are well advised not to follow the Asian way of maintaining national sovereignty in trade-related policies. Rather, they had to commit themselves to internationally binding trade liberalization in order to enhance the credibility of their transformation policies. Such commitments were made on a regional basis within the EU framework of Eastern enlargement as well as on a multilateral basis within the GATT/WTO. The contribution of this approach of tying one's own hands to stabilizing expectations should be enhanced by the EU by offering CEECs stable conditions for market access.